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Precommitment, Transparency and Monetary Policy

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  • Geraats, Petra Maria

Abstract

Conventional wisdom says that commitment eliminates the inflationary bias of monetary policy. However, this paper shows that the inflation bias can persist even when the central bank commits. A simple model is presented in which the central bank precommits by setting the policy instrument, and the subsequent adjustment of inflation expectations is part of the transmission mechanism. Generally there is still an inflation bias, despite the absence of a time-inconsistency problem. It is caused by uncertainty about the economic disturbances to which the central bank responds. Only perfect transparency about economic information completely eliminates the inflation bias. -- Üblicherweise wird angenommen, dass ein Inflationsbias verschwindet, wenn sich eine Zentralbank glaubwürdig im voraus auf ihre Politik festlegt. Dieses Papier zeigt, dass ein Inflationsbias trotzdem fortbestehen kann. Es wird ein einfaches Modell dargestellt, in dem die Zentralbank im voraus ihre Instrumente festlegt und die anschließende Anpassung der Inflationserwartungen Teil des Transmissionsprozesses ist. Im allgemeinen existiert ein Inflationsbias weiter, obwohl kein Zeitinkonsistenzproblem mehr auftritt. Ursache ist die Unsicherheit über die ökonomischen Störungen, auf die die Zentralbank reagiert. Nur vollkommene Transparenz hinsichtlich der Informationen beseitigt vollständig den Inflationsbias.

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2001,12.

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Date of creation: 2001
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Handle: RePEc:zbw:bubdp1:4158

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  1. Matthew B. Canzoneri, 1983. "Monetary policy games and the role of private information," International Finance Discussion Papers 249, Board of Governors of the Federal Reserve System (U.S.).
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  7. Petra M. Geraats, 2001. "Why Adopt Transparency? The Publication of Central Bank Forecasts," Macroeconomics 0012011, EconWPA.
  8. Faust, J. & Svensson, L.E.O., 1998. "Transparency and Credibility: Monetary Policy with Unobservable Goals," Papers 636, Stockholm - International Economic Studies.
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Citations

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Cited by:
  1. Petra M. Geraats, 2009. "Trends in Monetary Policy Transparency," International Finance, Wiley Blackwell, vol. 12(2), pages 235-268, 08.
  2. Volker Hahn, 2009. "Transparency of Central Bank Preferences," German Economic Review, Verein für Socialpolitik, vol. 10, pages 32-49, 02.
  3. Courtenay, Roger & Clare, Andrew, 2001. "What can we learn about monetary policy transparency from financial market data?," Discussion Paper Series 1: Economic Studies 2001,06, Deutsche Bundesbank, Research Centre.
  4. Petra Geraats, 2005. "Transparency of Monetary Policy: Theory and Practice," CESifo Working Paper Series 1597, CESifo Group Munich.
  5. Daniel L. Thornton, 2003. "Monetary policy transparency: transparent about what?," Manchester School, University of Manchester, vol. 71(5), pages 478-497, 09.
  6. Sibert, Anne, 2006. "Is Central Bank Transparency Desirable?," CEPR Discussion Papers 5641, C.E.P.R. Discussion Papers.

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